What are investing fees to avoid?
It is of utmost importance to understand the different fees that could impact your returns when it comes to investing. Investing fees can substantially cut into your gains! Don’t let a simple % take away all of your earnings! What if the fees are low? Now, while some fees may be low, you don’t want anything cutting into your gains. To minimize costs, it’s crucial to understand and carefully select your investments and the brokerages you use for said investments.
This post is about investing fees to avoid.
Let’s dive into the top 5 investing fees to avoid:
1. Management Fees (Actively Managed Funds)
This is especially the case for actively managed funds. This will come in the form of an expense ratio. This is an annual fee, typically presented in percentage form. When investing in mutual funds and ETFs (exchange-traded funds), pay attention to the expense ratio. Some could be zero! However, for those that aren’t, make sure it’s low! For example, an expense ratio of 0.3% means you’ll pay $3 for every $1,000 invested (every year).
2. Transaction Fees
These are also VERY important to pay attention to! Transaction fees are charged when you buy or sell securities (a.k.a. when you trade). There are many brokerages that offer free trades for stocks and ETFs, so make sure to double check which account you’re making the transaction in. The difference could result in transaction fees costing you!
3. Account Fees
Similar to certain bank accounts, some will charge you fees for maintaining your investment account. This varies by brokerage and account types. Make sure to check for account fees when opening an account.
4. Advisory Fees
These are fees charged by financial advisors or robo-advisors. This pays them to manage your portfolio and can range between 0.25 to 1% of your assets under their management. While it doesn’t sound like much, depending on the brokerage/company, these can be charged regardless of whether they increase your investment (therefore, further costing you money!).
On top of that, if your gains are only 5%, that 1% can end up costing you quite a bit in the long run!
5. Foreign Transaction Fees
Thinking about trading (buying/selling) foreign securities? Make sure to research if there are any foreign transaction fees! This could be in the currency conversion or simply additional fees for international trading.
To reiterate, the top 5 investing fees to avoid are:
- Management Fees (Actively Managed Funds)
- Transaction Fees
- Account Fees
- Advisory Fees
- Foreign Transaction Fees
There you have it! Interested in learning more about the best investments? Check this post out for the best investments for Roth IRA.
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